Gas Transit: New Solutions for Europe's Energy Independence

If the deal goes through, Russia will effectively continue supplying gas to the EU disguised as Azerbaijani. Russia continues to transport its resources through Ukraine's gas transmission system, earning approximately £11 billion annually -- £6 billion from oil transit and another £5 billion from gas sales. At the same time, the European Union is actively working to minimise its dependence on Russian fossil fuels, setting targets in 2022 for a gradual and complete refusal of Russian gas by 2027.

Currently, the EU does not intend to extend the contract for Russian gas imports that will expire in 2024, and is actually ready to live without it.

According to European Commissioner for Energy Kadri Simson during the 2024 State of the Energy Union report, the share of Russian gas in European imports has decreased from 45% to 15%. During a recent European Parliament session on energy security, Maros Sefcovic, the European Commissioner for Trade and Economic Security, underlined the EU's determination to "fully disconnect" its energy supplies from Russian oil and gas. He noted that despite the sanctions on Russian oil, the shadow fleet in the Baltic Sea is thriving, and the EU has promised to take steps to reduce these supplies and to completely cut off Russian gas and oil.

As for Ukraine, Russian gas transit is only 5% of total gas imports to the EU. This is a rather small amount for Europe, which allows it to live without Ukrainian transit. If Ukraine decides to cut off Russian gas transit, it will cut off about £5 billion in annual revenue for Russia, financial resources that are used to maintain its military operations against Ukraine.

Meanwhile, there is discussion of the idea of transiting Azerbaijani gas as an alternative to Russian gas. But this scheme hides another commercial agreement, under which Russian gas will in fact continue to be supplied under the guise of Azerbaijani gas. Some EU member states have expressed the need to ensure gas supplies through the Ukrainian GTS.

For example, the Slovakian company SPP has officially confirmed negotiations to continue transiting Russian gas through Ukraine in 2025. This raises the question: why would a country that consumes only 4 billion cubic metres of gas per year sign contracts for 20 billion cubic metres? This decision looks like an attempt to create a new gas scheme.

On October 24, the European Parliament adopted a resolution indicating a change in attitude towards the energy partnership with Azerbaijan. They expressed concern over the political situation in the country, in particular the human rights situation, and called on the EU to reconsider its dependence on Azerbaijani gas. The Parliament asked the European Commission to suspend the Memorandum of Strategic Partnership in Energy signed with Azerbaijan in 2022.

It is important to mention that Azerbaijan simply does not have free gas for transportation. If the deal goes through, Russia will in fact continue to supply gas under the guise of Azerbaijani gas. So, instead of making Europe energy independent, it will only restore the old corruption schemes that were used to achieve the Kremlin's political ambitions.

If Russian gas again takes on this role under the guise of Azerbaijani gas, it will only confirm that Europe could once again be under Russian influence, but in a new shape. The real question is how to avoid repeating past mistakes and what mechanisms can be put in place to ensure transparency in this area.

Problems of accounting for the origin of Russian gas in Europe

European energy markets are facing a serious problem - the lack of clear records of the origin of Russian pipeline gas. This makes it difficult to understand the actual amount of supplies from Russia.

Existing regulations do not provide full transparency regarding the sources of energy resources entering European markets. In order to regulate these issues, the EU has several directives, including Remit Directive 1348. It obliges EU countries to provide detailed information on energy sources to the ACER regulator.

However, this directive needs to be improved and extended to countries that are not yet members of the Union. Ensuring control over energy resources at all stages of supply, from their origin to their arrival in European countries, will help to identify the influence of individual traders, prevent market manipulation and stabilise the EU energy system. Notably, at the end of this year, Russian liquefied natural gas (LNG) already covers 20% of the European market.

Looking back to 2021-2022, when the price of gas in Europe tripled, it becomes clear how this affected the cost of electricity. The sharp rise in prices occurred because traders were holding back certain volumes of gas, artificially influencing the market. Today, Europe still lacks full transparency regarding the sources of energy supplies, which applies not only to gas but also to other fuel sources.

The situation with pricing and supply will remain unstable until there is full information about extraction volumes, origin, transit, and the quantities stored in gas storage facilities. Only then will it be possible to assess the risks associated with the activities of large traders and the impact of their actions on the market. Gas prices will continue to have a significant impact on electricity prices over the next five years, especially with the transition to green energy, as Europe gradually reduces its dependence on traditional fossil fuels.

The problem can be solved quite simply: the European Commission can make changes to Remit Directive 1348, requiring all traders to provide information on the country of origin of gas and other energy resources. With such changes, we will be able to distinguish whether Azerbaijani gas will actually be transited or whether it originates from Russia. Having a complete picture, Europe will be able to sign long-term contracts with reliable partners.

Today, long-term LNG and pipeline gas supply agreements are mainly offered by Russian companies. For example, the Russians are signing contracts for LNG supplies until 2040, which resonates with Europe's commitment to gradually cut off Russian gas by 2027. The positive impact of the new measures will not be limited to analyzing the producing country and sales volumes.

This will allow us to understand how much gas of different types, LNG or pipeline, is used by various consumers, such as businesses or citizens. As a result, the need for gas for specific countries, such as Slovakia, which may need 4, 5 or even 20 billion cubic metres, will become completely transparent. Based on this data, Europe will be able to carry out strategic long-term planning, which may also include Ukraine in the energy region.

The role of gas storage facilities

It is well aware that Ukraine possesses the largest gas storage facilities in Europe, and these resources can be a key element in ensuring energy security.

For this reason, the Trans-Balkan and Polish corridors can be effectively used to transport gas to Ukrainian gas storage facilities, which in turn will help reduce the impact of possible manipulation on the Russian market. Gas storages play an important role in the operation of the gas transmission system, as they ensure the balancing of the system. In case of insufficient gas supply, these storage facilities become a source of additional volumes, which helps to maintain stability for both internal needs and transit.

Gas storage facilities are especially important in winter, so Russia tries to attack them to prevent the accumulation of sufficient reserves. Despite this, these facilities continue to operate as they are difficult to destroy even under targeted attacks. According to the ExPro consulting company, in 2024, Ukraine's gas storage facilities hold more than 12.8 billion cubic metres of gas, which demonstrates the country's ability to act as a reliable transporter of gas between European countries.

This should become a new strategic goal for Ukraine, which can ensure energy stability not only for itself but also for other European countries. Victoria Voytsitska, Member of the Parliament of Ukraine of the 8th Convocation, Director of Advocacy in the Energy Sector at the International Centre for the Victory of Ukraine (ICUV), Olga Babiy, Member of the NEURC 2019-2024

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